Chief Executive Officer (CEO), Moses Ojeisekhoba at Swiss Re has warned that climate changes will have a greater impact on global supply chains than was evident from COVID-19.
The global COVID-19 coronavirus pandemic has had a negative impact on supply chains around the globe, driving inflationary fears as well as resulting in shortages.
Swiss Re had previously forecast that the world’s supply chains were changing fast and that the increasing complexity of global supply chains would drive more risk and also entirely new exposures.
“Restructuring of supply chains has become a key global macroeconomic trend, which will present opportunities for innovation in new insurance solutions,” Jerome Jean Haegeli, Group Chief Economist, Swiss Re explained at the time.
Which led Swiss Re’s research team to conclude that changes to global supply chains could generate around US $63 billion in additional global insurance premiums just over the next five years.
Swiss Re’s CEO of Reinsurance Moses Ojeisekhoba discussed the issue of supply chains recently, explaining, “The global supply chain is expected to remain a challenge through 2022, slowing down economies and fuelling inflation. If economies pick up, the mismatches in supply and demand could worsen. The imbalances could be exacerbated by a shortage of labour.
“Investments in infrastructure expansion will alleviate some bottlenecks, but not nearly enough. This dynamic environment is forcing companies into a constant state of flux. They are facing long waits for orders, and customers that are becoming increasingly impatient. They have to adapt to the changing supply chain reality and the series of new risks this brings.”
Companies are already working to reduce risk in their supply chains and minimize the impact of a global supply crunch. They are relocating operations and optimizing their processes.
But a range of other issues are also set to continue elevating prices, including the “deglobalisation trend”, which Ojeisekhoba said could “lead to structurally higher prices and weigh on household consumption in the long term”.
Ojeisekhoba believes Swiss Re can help clients understand the impact of global supply chain dynamics changes on their risk profiles.
This will require new and innovative insurance and/or reinsurance models.
“With the changing risk landscape of global supply chains, risk models and coverage must be adapted. Apart from diversifying the geographic locations of suppliers, there is also a big push to increase the transparency of the supply chain so that emerging disruptions can be detected in advance, before a crisis occurs,” Ojeisekhoba further explained.
Adding that, “When it comes to evaluating systemic supply chain risk, data is crucial. One of the most important aspects of supply chain risk management is being able to analyze single data points and see their impact on whole networks.
“As a global reinsurer, Swiss Re is an aggregator of vast amounts of data regarding the movement of goods around the world. Combining complex risk and data modelling techniques with external data gives us a clear understanding across all supply chains.
“We use this knowledge to make evidence-based decisions, pinpoint vulnerabilities, and address risks with the appropriate insurance products.”
The COVID-19 coronavirus pandemic has weighed heavily on supply chains and Ojeisekhoba noted that it has “exposed vulnerabilities” in some.
However, he believes that the causes and influences of supply chain disruption in many cases were already present in many countries before the pandemic.
Ojeisekhoba warned that there may be other factors that have a longer-lasting and more significant impact on global supply chains.
“The impacts of climate change on supply chains are bound to last longer than those of the pandemic,” Ojeisekhoba said. “This year alone, unusually heavy monsoon rains and flooding have affected vast swathes in Asia, including industry-intensive regions in India, Japan and China, complicating production and logistics for manufacturers worldwide.”
Swiss Re’s catastrophe modeling tools are used by clients to identify potential supply chain exposure to weather, climate and catastrophe events.
“Robust global analytic capabilities can facilitate a forward-looking approach to risk management that anticipates emerging threats,” according to Ojeisekhoba.
“Greater availability of better data improves not only modelling capabilities, but also helps to make the interaction between members of a supply chain ecosystem more efficient.”